Valuing Your Business in the Wake of COVID-19: Key Considerations

Your business has likely been negatively impacted in some way by COVID-19, even if some industries—certain retailers, household staples manufacturers, technology companies—were better positioned for the unforeseen effects of a pandemic. Still, few companies have been insulated from the overall erosion of value. If you were thinking of selling your business or otherwise planning an exit strategy, here are a few practical considerations:

  • The impact of COVID-19 on exit strategies. It may be prudent for business owners contemplating a sale, or already in negotiations, to first weather the pandemic storm before completing the transaction. In fact, they might not have a choice. Many potential buyers will shy away from deals due to uncertainty or lack of financing. On the other hand, companies and/or private equity groups with strong balance sheets could be looking to capitalize on the opportunity to buy at a discount. Conversely, this could be an advantageous time if you are looking for strategic expansion opportunities. Be mindful of these market dynamics.
  • The impact of COVID-19 on valuation date and purpose. Most companies didn’t begin feeling the effects of the global pandemic until early March—perhaps earlier for companies whose supply chains depend on foreign manufacturers. The impact of government-imposed lockdowns and social distancing weren’t seen until the last half of March. And we still don’t know how long the demand shock will persist. In times of uncertainty, what was known or knowable as of the selected “valuation date” is of great importance. For business owners with valuations currently underway:
    • If the valuation is for estate purposes, a lower value as of the alternate valuation date may be preferable if the date of death was prior to the economic impact of COVID-19.
    • If gifting or other transfers are part of your estate plan, now could be a favorable time to lock in supportably low values.
    • If you have an ESOP, the trustee may consider it necessary to update the year-end 2019 valuation for Q1 2020, especially if you expect ESOP share transactions.
  • The impact of COVID-19 relative to calculating damages. Plan for litigation activity on the heels of COVID-19—for breach of contract, business interruption or a multitude of other claims. You should be proactively gathering the data you’ll need to calculate damages while the information and your recollections are fresh. Key data include costs to remedy supply gaps, changes in forecasted performance, and correspondence from suppliers regarding delays and from customers cancelling orders. Such information could be difficult or impossible to obtain or recreate months or years down the road.
  • The impact of COVID-19 on marital litigation strategy. If you are going through a divorce and your or your spouse’s business is part of the marital estate, consult with an attorney about how the COVID-19 crisis might impact litigation strategy and timing. It could make sense to either postpone or accelerate certain litigation steps and/or modifications.

If you have questions or concerns about how the COVID crisis has affected the value of your business, contact your HBK professional. We’re ready with the expertise and counsel to help you make good decisions. Call (412) 431 - 4460 or you can contact me at rzahner@hbkvg.com.

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About the Author(s)
Robert is a Senior Manager in HBK Valuation Group’s Pittsburgh office. His public accounting experience includes extensive involvement with businesses and individuals planning for and complying with federal, state and local tax filing requirements, as well as financial statement analysis for attest. He has leveraged his years of experience and skills as a Certified Public Accountant into performing valuation services of closely held businesses, pass-through entities, C corporations, professional practices, intangible assets, family limited partnerships, and other entities.
Hill, Barth & King LLC has prepared this material for informational purposes only. Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.

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